Internal Audit and Independent Audit: What are the differences?
Internal audit is an independent, objective assurance and consulting activity designed to add value and improve organizations’ operation. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Independent audit is the activity that practicing auditors, audit firms, branches of foreign audit firms in Vietnam give their independent opinions on the financial statements and other audit works stated in the audit contracts. (Source: Law on independent audit)
Basing on the above definitions, internal audit and independent audit are different in the following main perspectives:
About the principal users who receive and use audit reports:
- Internal audit: It is the highest-level governing body (including independent and non-operation members) and senior management of the enterprise, who want to improve the organizations’ operation and add value.
- Independent audit: it is the related parties including public shareholders, investors, business partners, banks, local authorities etc. who want to obtain the third party’s assurance opinions.
About the main subjects to be audited:
- Internal audit: it is the governance, risk management, and internal control processes.
- Independent audit: It is the financial statements
About the main functions:
- Internal audit: including both assurance and consulting activities.
- Independent audit: it is assurance activity only, auditors may offer clients their recommendations regarding risks and operation of the clients basing on their audit findings. However, it is the values added only, rather than the main function.